Base rate rise predicted for coming months

The next base rate rise may happen as early as May economists are suggesting, with the effect likely to be greater than last year’s rise according to brokers.

The Bank of England’s Monetary Policy Committee is due to announce its latest decision on interest rates on Thursday. The Bank has previously hinted that a second rate rise will take place this year, and while there is little expectation that rates will increase this month, some experts are bringing forward their predictions for when the rate rise will take place.

The EY Item Club says it expects two rate rises in 2018, with an increase to 0.75 per cent in May followed by an increase to 1 per cent in November.

In its Winter Forecast 2018 report, it says: “With the economy now seemingly on a slightly firmer footing, the labour market tight and interest rates of just 0.50 per cent still essentially marking an emergency rate, there is a clear case for the Bank of England to move towards normalising monetary policy.”

Coreco director Andrew Montlake says that the combination of a strong start to the year, a drop in inflation and improving confidence indices may prompt the Bank of England to act sooner.

He notes that the Bank was criticised for being late in cutting rates back during the financial crisis and does not want to risk overheating the economy by being too slow in increasing rates when the time comes.

He continues: “There is a balancing act for the Bank of England; it doesn’t want to do too much, too soon. The Bank has already pointed out there will probably be a rise this year, and while a lot thought that would be towards the end of the year, with the better sentiment at the moment some are expecting that will be brought forward to May.”

If rates are increased before the summer, it appears likely that it will have a greater impact on the mortgage market than last November’s rise.

Montlake notes that it had been expected for so long that it was already priced into rates by the time it finally took place, adding: “It didn’t really make any difference to anyone.”

Association of Mortgage Intermediaries chief executive Robert Sinclair says: “If the pressure is starting to come out of inflation, and we are turning a corner there, then there is less pressure to increase base rate unless the Bank of England believes the economy is overheating.

“There is lots of uncertainty still though, particularly with Brexit. We still aren’t sure how that will play out in terms of market issues.”

Perception Finance managing director David Sheppard says he isn’t expecting another rate rise soon, arguing that the Bank of England will have to “temper any desire” to raise rates due to the effects a rise would have on the wider economy.

He adds: “That said, another rate rise should not have too great an impact and may encourage a few more people who have been on favourable tracker rates to make the shift onto a fixed deal. We would still have very low borrowing rates and the benefits on home ownership versus renting should still be strong.”

Recommended

The Bank of England Monetary Policy Committee has voted to keep base bank rate at 0.5 per cent. The MPC vote was unanimous. Last month, the MPC hiked the base rate from 0.25 per cent to 0.5 per cent. Santander UK chief economist Frances Haque says the move was “expected”. He adds: “Financial markets and […]

Two-year buy-to-let tracker rates have increased by an average of 0.20 per cent since the base rate rise on 2 November, Moneyfacts says. The average rate for this product is now 2.43 per cent. This is the highest monthly rate increase ever seen by Moneyfacts. Two-year buy-to-let fixed rates have risen 0.04 per cent in […]

Remortgage activity spiked in Q3 as homeowners tried to protect themselves from an expected Bank of England base rate rise, according to the Intermediary Mortgage Lenders Association. IMLA says 88 per cent of remortgage applications resulted in offers in Q3. This is eight percentage points higher than Q3 2016. The number of offers leading […]

Buy to Let Club has added The Family Building Society and bridging lender Octane Capital to its panel. Brokers who are members of the club can now also access packaged deals from Kent Reliance. Family Building Society is particularly known for its offset deals which allow borrowers to sacrifice interest on their savings in order […]

Along with global legal practice Eversheds Sutherland, we look at why employers may want to do more than simply meet the legal minimum in terms of their auto-enrolment duties. Our new policy paper — ‘Automatic enrolment and the law – how far do employers’ duties extend?’ — summarises current minimum duties of employers to enrol […]